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Exchange rate risk management: What can we learn from financial crises?

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  • Lan, Li-Huei
  • Chen, Chang-Chih
  • Chuang, Shuang-Shii

Abstract

Since most present studies on exchange rate risk have pointed out that it does exist, firms need to hedge all currencies in use. However, by examining the discrepancy between cost-side and revenue-side exposures across two major financial crises for Taiwanese firms, we find that the exposure mainly comes from the revenue side during the subprime crisis, while that comes from the cost side during the Asian crisis. Our results offer an applicable implication that as long as the cost-based or revenue-based hedging strategy can acquire same hedging benefit and effectively reduce hedging cost.

Suggested Citation

  • Lan, Li-Huei & Chen, Chang-Chih & Chuang, Shuang-Shii, 2015. "Exchange rate risk management: What can we learn from financial crises?," Economic Modelling, Elsevier, vol. 45(C), pages 187-192.
  • Handle: RePEc:eee:ecmode:v:45:y:2015:i:c:p:187-192
    DOI: 10.1016/j.econmod.2014.11.018
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    References listed on IDEAS

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    Cited by:

    1. Streit, Daniel, 2016. "Firm-level effects of asymmetric intervention in foreign exchange markets: Evidence from the Swiss currency floor," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 289-312.
    2. Narayan, Paresh Kumar & Mishra, Sagarika & Narayan, Seema & Thuraisamy, Kannan, 2015. "Is Exchange Rate Trading Profitable?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 38(C), pages 217-229.

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